Vision for the Future
You will see a lot tighter integration between the whole trade - the whole pre-trade analysis through the electronic delivery. I also think there is going to be a little more differentiation about who is making the decision. Up until now, it's been that when it gets measured, it looks like you are measuring the broker. But you are really measuring the buy-side trader because they are the ones who are controlling the pace of the order 80 percent to 90 percent of the time.
Fun Facts
Tell us something interesting that few people know about your professional or personal background.
I am a grandfather with three grandchildren and I refereed high school and college football for 25 years. Refereeing never gives you an overblown view of yourself. Sometimes, as a buy-side trader, people tend to want to meet you. But when you put on that referee uniform, it brings you back to reality. Not everyone likes you.
INTERNATIONAL TRADING
In which international markets do you trade?
Primarily markets here in the U.S., Europe and Canada.
Who do you use as a custodian bank?
We have a somewhat unique relationship with our custodian. We have two custodians. The primary one is State Street; the secondary one is JPMorgan. We physically have these bodies that are located right on our floor with us, so they have pretty much outsourced their bodies or their workers to us. They have access as GM employees, but they have portability directly to the custodians. It saves a step and eliminates our need to have a middle office because we have the back office right here.
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General Motors Asset Management
767 Fifth Avenue
New York, NY 10153
Assets under management:
$160 billion.
Fund(s) for which you trade:
Silvermine Fund (about $30 million in assets under management).
Daily volume in equities:
N/A
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Types of products traded:
It runs the gamut from equities to options to derivatives to structured products and foreign exchange. We don't do a lot of cash fixed income.
Structure of trading department:
There are four traders, including myself. We don't really have a specialty. Each trader has traded every asset class, although they tend to gravitate more toward one by design. But we have one trader for futures.
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Because of the nature of futures, a lot of it is done in the Far East and Europe, so he or she will be out of the office and work from home. A lot of that naturally falls into the hours that he or she is working. The other traders, including myself, will handle FX, or will handle equities, or will handle the derivatives that are there. So my philosophy is that all these markets are interlinked. It's better to have an understanding of all of them and see what the interlinkages are, rather than focus on just one area.
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Each one of our traders can handle the program trading and the pre-trade analysis.
Previous Positions:
I was at AXA Equitable for 21 years and Charles Schwab Corp. for three years.
Education:
I have a B.A. in psychology from Syracuse University and a master's degree in business management from Michigan University.
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TECHNOLOGY
Technology budget for trading:
About $500,000.
Technology used to trade:
We have the AES system from Credit Suisse along with Liquidnet and ITG's products.
Chief Information Officer:
Henry Liedtka
How do you work with your CIO when it comes to getting new technology on the trading desk?
He's been very instrumental. We've worked very closely. With his predecessor we were able to bring our trade order management system in here. Previously, we both reported to the same head, so we were in a lot of meetings together. I understood what his life was like and he understood mine. So it's been a very solid relationship.
PORTFOLIO MANAGEMENT
Describe your relationship with your portfolio managers? Has it changed recently? Do you expect it to change?
One of the pluses that we have here is that ... the bulk of our assets are managed externally, but we do keep less than 20 percent managed internally. For each asset class, we have a portfolio manager that oversees the asset class. They act as portfolio manager, and they are also responsible for the outside managers' performance. Because of that, we tend to have a pretty close working relationship with each manager to understand what his or her strategy is. Physically, we are all located on the same floor, so we've got the advantage of having the proximity. Each day we have a morning meeting, which the portfolio managers and traders and analysts attend, so we get to look at each other every day and ask questions about strategies and talk about the various aspects of what happened the day before and what we expect to happen that day.
[Going forward], I expect even more collaboration because the products that are coming out now tend to be more in the swap arena. It kind of bridges the juncture between the portfolio manager and the trader because swaps are customized instruments that are not really a trading instrument; they are not portfolio management. They are in between. So you need the trader to understand what the portfolio manager is trying to achieve, and the trader has to really understand what the goal is for the portfolio manager. The traders are the ones that are speaking with the Street and seeing the data and information regarding what swaps are available.
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LOOKING AHEAD
What trends/regulations/issues do you think will transform your role as a trader?
One of things that is going to be a big issue is how traders are measured. Now, it's pretty much the VWAP. If they do come up with a rival price impact type of measurement, I think you will see more capital commitment on the part of the traders who are willing to do that. Right now, you've got the VWAP and it's kind of a murky measure that doesn't really encourage you to take a risk or buy something a little riskier. But I think if people start looking at the portfolio manager's goal and target in this environment, you really want to be buying or selling these securities very close to what the price was that the pro had in mind. I think that if, in fact, the performance is measured differently, that's going to have an impact.
ALGORITHMS
Types of algorithms used to trade:
We use the volume weighted average price (VWAP) and arrival price algo from AES a lot of the time. [In the future] there will probably be more movement toward the arrival price or the previous day's close.
Do you use algorithms for equities only?
Right now, we do. There is not much available on the futures side. There is some movement toward it, but right now we seem to rely on it just for equities.
Which brokers' algorithms do you use?
Credit Suisse, ITG and Goldman.
Do you build your own algorithms?
No.
How do you rate your brokers and determine which broker will get your order flow?
Our broker ratings for execution are reviewed on a daily and quarterly basis by two outside services. The daily service, provided by QSG, uses several benchmarks, which allows for flexibility and customization. Most important, the data is available to take quick action. The quarterly data, provided by Elkins McSherry, is more robust and provides an in-depth analysis and review of out-trading performance.
In addition to the subscribed services provided by outside vendors, our traders assess daily each of their broker executions. The traders have full discretion in order allocation. They take into consideration a number of factors including quality of information, frequency of calls and e-mails, timeliness of data, insightfulness, response time to requests and decisions, and quality of execution under the appropriate circumstances.
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Interview by Leslie Kramer, Contributing Writer
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